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Washington Hotline – April 28, 2020

WASHINGTON NEWS

IRS Explains How to “Get My Payment”

The IRS published a new “Get My Payment” tool on IRS.gov. As the IRS continues to issue Economic Impact Payments of up to $1,200 for individuals or $2,400 for married couples filing jointly plus $500 per eligible child, Americans are interested in knowing when the checks will be received.

Following the creation of the “Get My Payment” app on IRS.gov, the IRS published a frequently asked questions (FAQ) on the website.

Who is eligible?

U.S. residents will receive the $1,200 or $2,400 stimulus checks if they are not a dependent of another taxpayer, have a Social Security number and have income under $75,000 for individuals or $150,000 for married couples filing jointly. The individual payment is phased out with income between $75,000 and $99,000. The married filing jointly payment is phased out between $150,000 and $198,000. Recipients of Social Security or veterans’ benefits who do not file a tax return will still receive their stimulus payments.

Who is not eligible?

Individuals with incomes over $99,000 or married couples with incomes over $198,000 will not receive a check. Children or students who are dependents on their parents’ tax returns and nonresident aliens will also not receive payments.

How much will be paid?

The general payment will be $1,200 for single persons and $2,400 for married couples filing jointly subject to phaseouts. There is an additional $500 payment per qualifying child.

Do you need to apply for a payment?

No. The payments will be sent automatically to individuals who have filed tax returns in 2018 or 2019 and to recipients of Social Security and Railroad Retirement. Those who are not within these groups may still use the “Get My Payment” tool to enter information and determine whether they qualify.

The IRS plans to send letters to explain the stimulus payments to recipients. The IRS also cautions Americans to be on the lookout for fraudsters and scammers who will attempt to steal personal information and stimulus payments.

When will the payments be made?

The IRS is in the process of sending electronic payments in April. Paper checks will be distributed in May and June.

I received a Form SSA–1099 and file a return. Can I use Get My Payment?

Yes. You may need to verify your identity by answering security questions, but will be able to use the tool.

I received Form SSA–1099 or RRB–1099 and do not file a tax return. Can I use Get My Payment to enter bank information to receive a direct deposit?

No. If you did not file tax returns for 2018 or 2019, you will not be able to use Get My Payment to provide bank account information. The IRS will use the information on your retirement tax form to produce your payment.

Does Get My Payment display different stages for the payments?

Yes. Your payment status could be that the check has been sent or the payment is scheduled to be sent by direct deposit or mail. Paper checks will be sent in May or June.

Where did the IRS get my bank information? What if I want to change it?

The bank information is generally acquired from your 2018 or 2019 tax return. If you have completed the steps on Get My Payment, you may provide bank information.

Get My Payment allows you to provide updated bank information to the IRS. That information could be used to deposit your payment directly into your bank account.

New Coronavirus Relief Bill Signed

On Friday, April 24, 2020, the President signed a fourth coronavirus stimulus package. The Coronavirus Aid, Relief, and Economic Security (CARES) Act which provided a $2.2 trillion stimulus was signed on March 27, 2020. Just four weeks later, an additional $484 billion stimulus package was passed.

The CARES Act was passed by the Senate on a voice vote. For the new bill, on April 23, 2020, House members returned to Washington for a recorded vote in the House chamber. The vote was 388–5–1. House Members followed social distancing guidelines. All Representatives wore masks for the vote. Some House members, who were high risk due to medical reasons or were caring for family members, declined to return to Washington.

The major portion of the newest coronavirus stimulus bill is $310 billion of additional funding for the Paycheck Protection Program (PPP). Because there was concern that the first $349 billion went disproportionately to midsized businesses and not to small businesses, $60 billion is allocated to community banks that normally serve smaller businesses.

The $349 billion PPP Loan funding in the CARES Act provided loans to approximately 1.6 million small and midsized businesses. The Small Business Administration (SBA) processed the approvals in approximately two weeks. The SBA reports that there are still 700,000 small businesses waiting in the queue. The $310 billion of new PPP Loan funding is expected to be distributed quite quickly.

There is great concern in Congress about the rapid increase in the number of unemployed workers. With 4.4 million new unemployed Americans last week, there now are approximately 26 million Americans who have lost their jobs in the past six weeks. Restaurants, small retail shops, the travel industry and many service and manufacturing small businesses are under lockdown. Most of their employees are out of work. The PPP loans are designed to keep the unemployment rate from increasing to an even higher level.

Other provisions in the bill will assist medical centers, labs that are doing testing and those who need emergency disaster loans. There will be $75 billion allocated to hospitals. Many medical centers have curtailed noncritical surgeries and other services. They are experiencing a significant revenue decline. These medical centers reduced other medical services to set aside resources for COVID-19 patients. The $75 billion will assist in maintaining staffing even with reduced revenue.

There also is an allocation of $25 billion for coronavirus testing. The United States is now testing over 200,000 people per day and has conducted more than 5 million tests. Experts from the Centers for Disease Control suggest that increased testing is the key to opening up the economy.

The SBA also published an updated publication on frequently asked questions (FAQs) for PPP Loans. The FAQ was updated to provide guidance on loans for companies with ready access to other funding. PPP Loans FAQ #31 now asks and answers, “Do businesses owned by large companies with adequate sources of liquidity to support the businesses ongoing operations qualify for a PPP loan?”

There has been controversy because 94 public companies (some with $100 million in assets) received $365 million from the first PPP loan fund of $349 billion. In response to outrage by many Americans, some of the public companies have returned their PPP loans. The intention of the PPP loans is to assist small businesses and maintain employment levels.

The updated SBA FAQ states, “Specifically, before submitting a PPP application, all borrowers should carefully review the required certification that current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” The SBA emphasizes that this is a good faith analysis that requires review of other liquidity options. SBA emphasizes that the PPP loan must be necessary to maintain the business.

Separate Trade or Business UBTI Proposal Regulations

Prior to the Tax Cuts and Jobs Act (TCJA), the unrelated businesses of a nonprofit were permitted to aggregate income and losses. This method permitted profits in one subsidiary to be offset by losses in a second organization or entity. After the TCJA, nonprofits were required to treat subsidiaries as separate trades or businesses. The income and loss of each business must be calculated separately. It no longer was possible to use the losses in one subsidiary to offset the gains in another.

This provision is often referred to as the “silo” rule. Many large universities and medical centers have multiple subsidiaries that generate unrelated business taxable income (UBTI). These nonprofits face difficult decisions in separating these entities into separate businesses.

Notice 2018–67 permitted use of the six digit North American Industry Classification System (NAICS) codes to segregate entities. However, the proposed regulations permit aggregation using the first two digits of NAICS codes. This change will enable a broader categorization of the entities.

When the TCJA rules were created, universities and medical centers with large endowments were very concerned about their investments. Many have investments in private equity or in various partnerships. The nonprofits faced great problems if these investments were considered separate trades or businesses.

Generally, the nonprofit will be permitted to aggregate investments and qualifying partnership interests (QPIs). The aggregation of investments will significantly reduce the challenge of administration.

The IRS has not yet issued specific guidance on Reg. 1.512(a)-1(c), which governs the reasonable allocation of expenses between parent entities and subsidiaries. That guidance has been delayed until a further date.

Editor’s Note: The proposed regulations will be reviewed in detail by large nonprofit organizations. The CFOs and CPAs for these organizations will need to redesign accounting systems to function with the requirement for separate filings. This redesign of the accounting systems is going to require a significant amount of time.

The IRS has announced the Applicable Federal Rate (AFR) for May of 2020. The AFR under Section 7520 for the month of May is 0.8%. The rates for April of 1.2% or March of 1.8% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2020, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

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